RPC, Inc. — 2015 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2015; this is an annual report, not a standalone fourth-quarter filing. RPC provides oilfield services and equipment, principally in the United States, through Technical Services and Support Services. Pressure pumping represented about 54% of 2015 revenue. Approximately 70% of revenue related to oil activity and 30% to natural gas activity.
Financial results and liquidity
| Metric | 2015 | 2014 |
|---|---|---|
| Revenue | $1.264 billion | $2.337 billion |
| Operating income (loss) | $(156.3) million | $400.9 million |
| Operating margin | (12.4)% | 17.2% |
| Net income (loss) | $(99.6) million | $245.2 million |
| Diluted earnings (loss) per share | $(0.47) | $1.14 |
| Cash from operating activities | $473.8 million | $322.8 million |
| Capital expenditures | $167.4 million | $371.5 million |
| Cash and cash equivalents at year-end | $65.2 million | $9.8 million |
| Long-term debt at year-end | None | $224.5 million |
| Working capital at year-end | $384.7 million | $612.6 million |
Cost of revenue was 78% of revenue versus 64% in 2014, implying a roughly 22% gross margin before other operating costs. Selling, general and administrative expense was 12.4% of revenue, up from 8.4%; depreciation and amortization was 21.4%, up from 9.9%. Total assets were $1.237 billion and stockholders’ equity was $952.3 million at year-end.
The $125 million revolving credit facility had no borrowings at year-end; $95.7 million was available after $29.3 million of letters of credit. A separate $35 million letter-of-credit facility obtained in January 2016 subsequently made the full $125 million revolving facility available. RPC reported compliance with its credit covenants and stated that liquidity was sufficient for at least the next 12 months.
Material changes versus 2014
- Revenue fell 45.9%, primarily because of lower customer activity and service pricing. Technical Services revenue fell 46.1%; Support Services revenue fell 43.6%. Both segments reported operating losses.
- The average U.S. domestic rig count fell 47.3% year over year; average oil and natural gas prices declined 47.7% and 39.3%, respectively.
- Operating results swung from profit to loss. Cost reductions, including lower headcount, incentive compensation and supplier prices, were insufficient to offset lower activity, competitive pricing and fixed-cost under-absorption.
- Operating cash flow increased largely because of a favorable working-capital movement, including a $599.8 million favorable change in accounts receivable. Capital expenditures declined sharply, and RPC repaid $224.5 million of net year-end debt.
- Employees decreased to approximately 3,100 from 4,500. International revenue decreased to $72.1 million from $88.2 million, while its share of total revenue increased to about 6% from 4%.
Outlook, risks and unusual items
- Management expected weak near-term results amid low oil, gas and natural-gas-liquids prices, falling rig counts and intense service-price competition. Industry analysts cited in the filing expected the U.S. rig count to decline further in the first half of 2016, then stabilize in the second half; this is not company earnings guidance.
- RPC planned no further increases to its revenue-producing equipment fleet in 2016 and estimated 2016 capital expenditures of approximately $60 million, primarily for maintenance. It did not expect to enter new long-term customer service arrangements in 2016.
- The quarterly dividend was reduced and then temporarily suspended in 2015. Management said it expected a possible resumption, subject to earnings, financial condition and other factors. No shares were repurchased under the buyback program in 2015.
- Anadarko accounted for approximately 23% of 2015 revenue and 14% of year-end receivables, creating significant customer-concentration exposure. Key risks also include commodity-price volatility, customer credit deterioration, competition, weather, skilled-labor availability, equipment and materials supply, environmental and hydraulic-fracturing regulation, international political and currency risks, and operational accidents or litigation.
- A change in accounting estimate reclassified pressure-pumping components from depreciable equipment to consumable supplies, increasing 2015 cost of revenue by $41.9 million and reducing depreciation and disposition losses by comparable amounts; management said the net impact on operating and net income was not material. RPC also recorded $6.3 million of proceeds from a legal settlement in other income.
- Routine commercial, workers’ compensation and personal-injury proceedings were disclosed. Management believed their outcomes would not have a material adverse effect. The company reported an approximately $12.0 million underfunded defined-benefit pension plan and expected a $0.9 million contribution in 2016.
- Grant Thornton issued unqualified opinions on the financial statements and internal control over financial reporting; management and the auditor reported effective internal controls as of year-end.
Important facts for investors to verify
- Whether activity and pricing stabilize, and whether RPC can restore positive operating margins as the rig count and customer spending evolve.
- How much of 2015 operating cash flow reflected temporary working-capital releases, and whether cash generation remains adequate as activity contracts.
- Liquidity and covenant headroom under the reduced credit facility, including availability after letters of credit and the terms of the separate letter-of-credit facility.
- Anadarko’s continued contribution to revenue and receivables, and the credit quality of other oilfield customers.
- Execution of the 2016 capital-expenditure plan, maintenance of idled equipment, and the potential cost or accounting effects of the pressure-pumping component estimate.
- Conditions for any dividend resumption, pension funding needs, and developments in tax examinations, regulatory matters, insurance claims and litigation.